Deciding to work with a financial advisor is about more than how much you've stashed away. It's also about determining whether an advisor's benefits outweigh the costs.
In your higher earning years, finances become more complex. More money means more decisions and more chances to make mistakes or miss out on opportunities. That's where a quality advisor can come in handy. They help you steer clear of bad investments, seize the right opportunities, and keep financial stress at bay.
Having more than one perspective to draw from is the key to well-informed financial decisions. Teaming up and talking it out, whether with your partner or a financial advisor, is always beneficial.
Questions answered:
How can I determine whether working with a financial advisor is worth it for me?
What factors should I consider when deciding if I need a financial advisor beyond just my age or income level?
Timestamps:
0:00 - Not an age-related decision
2:43 - Value and pricing structure
4:12 - Natural conflicts
7:24 - When benefit exceeds cost
10:02 - Cost of mistakes
12:18 - Cost of missed opportunities
14:16 - Cost of anxiety
16:02 - Thought partnership
21:36 - Summary
Create Your Custom Strategy ⬇️
Deciding to work with a financial advisor is about more than how much you've stashed away. It's also about determining whether an advisor's benefits outweigh the costs.
In your higher earning years, finances become more complex. More money means more decisions and more chances to make mistakes or miss out on opportunities. That's where a quality advisor can come in handy. They help you steer clear of bad investments, seize the right opportunities, and keep financial stress at bay.
Having more than one perspective to draw from is the key to well-informed financial decisions. Teaming up and talking it out, whether with your partner or a financial advisor, is always beneficial.
Questions answered:
How can I determine whether working with a financial advisor is worth it for me?
What factors should I consider when deciding if I need a financial advisor beyond just my age or income level?
Timestamps:
0:00 - Not an age-related decision
2:43 - Value and pricing structure
4:12 - Natural conflicts
7:24 - When benefit exceeds cost
10:02 - Cost of mistakes
12:18 - Cost of missed opportunities
14:16 - Cost of anxiety
16:02 - Thought partnership
21:36 - Summary
Create Your Custom Strategy ⬇️
The question that we're going to be answering on today's episode of Ready for Retirement is a pretty simple one, and it is at what age should I work with a financial advisor? This is a question that came up recently on a YouTube video I did, where I walked through a case study showing some different tactics we use for a client to set them up for a much better financial situation than they were currently in, and someone said, hey, this looks great. At what age should I consider working with a financial advisor? And so that's what we're going to be talking about on today's episode. This is another episode of Ready for Retirement. I'm your host, james Canole, and I'm here to teach you how to get the most out of life with your money. And now on to the episode, and I want to start this episode by first saying that I don't believe everyone needs to work with a financial advisor. I have met plenty of people who are doing some really great things, some really great planning, setting themselves up for success, and they don't have a financial advisor. They're either on it because they enjoy studying this. They watch lots of YouTube videos, they listen to lots of podcasts. They not only have the interest, but they also have the capabilities and the demeanor and the temperament to do this successfully on their own. So this isn't something where I'm going to be saying, hey, everyone needs a financial advisor and at this age this is when you should be doing it, because in fact it's not even an age thing. Even if you do need a financial advisor, there's not a specific age at which it happens. What I mean by that is I've seen plenty of 50, 60, 70 year olds who really don't need a financial advisor. They're doing things on their own or their situation is simple enough, where there's not really a whole lot of value that a financial advisor could provide. What we do is primarily geared towards people who are approaching or in retirement Many people who are much younger that have reached out to us and were able to do substantial work, some really meaningful work, because their situations are far more complex. It's selling businesses, it's complicated stock compensation, it's just a whole bunch of complexity with their personal lives, where there is a tremendous amount of value to having a financial advisor for that. So point number one not everyone needs a financial advisor. And then point number two, to address specifically this listener's question it's really not an age thing. It's not an age thing where at age 45, you should work with a financial advisor or age 55, you should work with a financial advisor.
Speaker 1:I will tend to say that there is a correlation where the older you get, the more your financial life does tend to complicate. The reason for this is pretty straightforward. Typically, the older you get, you start earning more. As you earn more, maybe some of the options in front of you increase as you get older. Maybe now you're balancing family and mortgage and retirement and sending kids to school and all these various competing goals that you have, and having an advisor to help with that can be quite helpful. So there is correlation, but there's not necessarily an age at which you should be working with a financial advisor. So if it's not age, what is it?
Speaker 1:Well, you might hear a lot of financial advisors say hey, it's a portfolio value thing. If you don't have more than $250,000, you don't need a financial advisor. If you don't have more than a million dollars or $2 million, you don't need a financial advisor. Now, these numbers that they throw out tend to correspond to whatever their investment minimum is. For better or worse, much of the industry charges based upon a percentage of the assets that advisor is helping you to manage. And when you hear an advisor say, hey, you don't need an advisor until you have $500,000 in portfolio assets and that also happens to correspond with their investment minimum to work with a client they're really saying, hey, we can't profitably serve you until you hit that point. It has nothing to do with you and it has everything to do with them. So just be mindful of that. So why is it that that's the case?
Speaker 1:Well, there's a couple things at play here. Number one, as I mentioned, historically speaking, the industry is typically charged based upon a percentage of the assets that advisors help you to manage. There are more and more hourly advisors now or fixed fee advisors out there. They're doing work for a specific fee for a specific project. Right now, most industry is still charging based upon investments that they're managing for you, root financial included. Now, I don't think that's a perfect pricing structure. In fact, I don't think any of them are perfect pricing structures. I think there's so much that depends upon an individual specific situation, as well as the advisor and the advisory firm and how they have things structured on their end.
Speaker 1:Now here's the bad news for advisors, again, including Root Financial, my firm for advisors that charge based upon a percentage of assets under management or investments that they're managing. It just creates some natural conflicts of hey, unless you have a certain portfolio value, the firm can't hit whatever profitability numbers they need to hit to effectively be able to work with a client. In Root's case, right now we have a minimum, and that minimum currently, as of this recording, is $2 million of investments under management. My goal is to drive that down as much as possible over time. It's simply there because we have a lot of clients reaching out to us to work with us, which is wonderful and we're grateful for that, but we only have so many advisors, we only have a team that can support so many new clients each month, and we will never, ever allow more clients to come in. That would then possibly cause that service to start to deteriorate.
Speaker 1:So this is a little bit of behind the scenes of why do advisors say, hey, you don't need an advisor If you don't have over a million dollars, or you don't need an advisor if you don't have over $500,000? Well, really, like I said, it's really them focusing on what's best for them, not necessarily what you need. I know plenty of people that have significantly less than $500,000, that 100% need an advisor, whether it's with budgeting help or goal setting, or hey, how do I pay off student loans? Or it's how do I prepare for retirement. Your portfolio doesn't dictate when you need an advisor, unless, of course, that advisor's only value is managing that portfolio.
Speaker 1:Hopefully you're not going to an advisor just to get your portfolio managed. You can do that for much cheaper than working with an advisor. There's great tools out there. You can do that on your own if that's all that the advisor is providing. But if you're looking for planning and guidance, then that's where the value of an advisor can be had. But it doesn't really correspond to a portfolio value. Like I said, our goal is to drive our portfolio minimum down as much as possible over time. I also think good news for the industry that over time the cost of working with an advisor will begin to come down, and that's just due to, at least for the advisors that are embracing the efficiencies provided by new technology solutions, by some really great technology tools coming out. Hopefully, adoption of that in creating great systems and processes on the backend will allow the cost of an advisor to come down over time, and what that will do is it will make advice more accessible to more people, allow more people to get the work that they're looking for.
Speaker 1:So, without going too much down that rabbit hole, what I'm trying to say here is that number one, age, isn't the factor at which, or the driving factor that says you should or shouldn't work with a financial advisor. Nor is portfolio balance. Again, there does tend to be correlation. As your portfolio balance grows, it's a sign of more complexity in many cases. So there's going to be a correlation with your benefit in working with an advisor versus someone that doesn't have any assets. But that doesn't mean someone with no assets, very little assets, doesn't need planning. They certainly could. It's just not the driving factor the amount that you have in assets. So what about income? Is income something that should determine whether or not you should work with an advisor? Again, I would say no. I think there's still more correlation. The higher your income, the more opportunity you have, whether that's with tax savings, investment opportunities, places you could put that income. But that alone isn't it. So if those things aren't the driving factors for when you should work with an advisor, it's not at a certain age, it's not a certain portfolio value, it's not a certain income level.
Speaker 1:When should you, or at what point should you, work with a financial advisor? To me, it comes down to one thing, and it's the point at which the cost of not working with an advisor exceeds the cost of working with an advisor. Now, the challenge of that is that can be a little bit difficult to quantify sometimes, so I'm going to do my best to help quantify that, or help you quantify it for your specific situation. Here's what it's not, though. A lot of people talk about or hear a podcast about when should you work with an advisor, and their mind immediately goes to hey, look, how many studies show that you can't beat the S&P 500. Why would you ever work with an advisor? Well, they're right and they're wrong. They're right yeah, these studies show it's incredibly difficult to beat the S&P 500. They're wrong in that they're misguided in what a good advisor should do. That is historically what an advisor has done. They said, hey, give us your money, we're going to try to outperform the market.
Speaker 1:Most good advisors now most, not all, but most good advisors are focusing on far more than just investments. Like I said previously, if you're just looking to have your money invested, you could do that for very, very low cost through all kinds of different platforms. You don't need an advisor to take your money and put it into investments for you. So there's a difference, though, between, say, beating the S&P 500, which is very difficult to do, and having the right asset allocation for your specific goals and needs. There's a difference between beating the S&P 500 and helping you to implement the right withdrawal strategy to minimize the chance of you running out of money in retirement. There's a difference between beating the S&P 500 and reducing taxes or understanding what accounts to save to or withdraw from. Really, there's so much more that a good advisor should do apart from just putting your money in certain funds.
Speaker 1:And, most importantly, what a good advisor should do is help you understand what's most important to you and help you ensure that never gets out of sight as you're doing your planning and your forecasting. You're investing. Are we constantly aligning every decision that you're making with what the actual goal is? To help you get the most out of life with your money, as opposed to focusing on the portfolio at the expense of all else, or as opposed to focusing on tax strategies at the expense of all else? So, really, someone to help organize your thinking, organize your assets, organize your income in a way that supports what you're ultimately trying to do.
Speaker 1:So, that being said, when I go back to what I just said of you should work with an advisor when the cost of not working with an advisor exceeds the cost of working with an advisor. What are those common costs? Well, they fall into one of three categories in my mind. Number one is making a mistake. Number two is missing an opportunity. And number three is experiencing pain. So let's walk through those. Number one making a mistake, doing the wrong thing at the wrong time.
Speaker 1:Now this is an example of as your income increases, as your net worth increases, as you get further along over the course of your career, approach in retirement, the cost of one single mistake can quite literally be tens or hundreds of thousands of dollars if you make that mistake. So, yes, there's a cost to working with an advisor, whether that's an hourly fee, a fixed fee, a percentage of investments fee. What you have to compare that to is what are the odds I make a mistake and what might that cost of that mistake be? And very difficult to quantify. And you may not be making mistakes. Maybe you're on it, maybe you keep up with podcasts and blogs and videos and you're so well-versed in your personal financial situation and you have the temperament to be able to detach from the emotional sides that we all have when it comes to money that you can make really objective decisions and really minimize the chance of a major mistake. That's great.
Speaker 1:If so, if not, ask yourself what's the cost of a mistake. What's the cost of one single mistake over a 30-year retirement, and how does that compare to the cost of working with an advisor over that same time? If they could just prevent one single mistake, would that cost be worth it? Now, that's nothing to saying what type of an advisor should you work with. That's a separate conversation Hourly, fixed fee, aum, et cetera. But weighing the costs evenly, understanding both the cost of that advisor as well as the cost of not working with an advisor I'm not even saying they can help you to avoid a mistake.
Speaker 1:Maybe you're not going to make a mistake. Good on you if that's the case. But know yourself, know your proclivities, know what you're prone to do. And is there something that could help you not make certain mistakes if you know that you're prone to making certain decisions at the wrong time or in the wrong way. So, whether it's a wrong investment, wrong tax move, retiring too early, retiring too late, choosing the wrong insurance coverage, lack of insurance there are just so many different things that that category could fall into or that could fall into that category, I should say so.
Speaker 1:Make a mistake is the first cost. Number two is missing an opportunity. As I just mentioned, many of you listening to this you probably keep up with finance stuff, stuff. This probably isn't the only podcast you listen to. This probably isn't the only video you watch. You've probably watched plenty of them. You probably listen to plenty of them. You've probably been reading and keeping up and track your net worth meticulously on a spreadsheet or some other thing. If that's you, maybe there's not as many opportunities, or maybe there are again. This is something only you can answer. But what's the cost of missing an opportunity? What's the cost of not doing the right thing at the right time? Not in terms of a detractor from your net worth, not in terms like a mistake that's going to cause you to take a significant step back, but something that's going to prevent you from moving forward like you otherwise could have.
Speaker 1:Don't think of opportunity just in financial terms. So much of the opportunities we try to help clients with is they are so dialed in on the finances and investments and taxes and all that stuff because they think that retirement is a math problem. And when we go through our process with them and help walk through what they actually want to accomplish, the opportunity has a lot to do with the financial side, certainly, but more of it is how can we start to see things differently? How can we start to prioritize a life well lived? How can we start to prioritize quality of life and experiences and the things that we want to do? Because many people left to their own devices would just become engrossed in their spreadsheets. Work one more year, save one more dollar, reduce this, reduce that, just keep doing things that optimize the financial side of their lives, but they miss out on a world of opportunity on the personal side because they can't detach themselves from being so dialed into the financial side.
Speaker 1:So missing an opportunity can fall both in the financial side of things as well as the personal side of things, and that is a cost of potentially not working with an advisor If you're the type of person that can't balance that out both the personal and the financial and doesn't do the work to kind of stay on top of all the things that you need to stay on top of for your personal financial planning. And then the third cost in this category is pain. So what do I mean by pain? Well, what I don't mean is someone's not coming to physically break your arm or break your leg. That's not the type of pain I'm talking about. What I'm talking about is financial anxiety, stress, overwhelm, worry, thoughts of what happens to my spouse and family if something happens to me, thoughts of what if I become incapacitated, thoughts of what am I missing, thoughts of you. Fill in the blank.
Speaker 1:There are many, many, many really smart people that still worry like crazy about their finances, even though they are in tremendous financial situations. One saying that one of my favorite authors named Nick Murray has is if you're still worried, you're not wealthy. I don't care how much money you have. If you're constantly worried about losing it, if you're constantly worried about what are you missing, that's not true wealth. Sure, you're rich. We don't want to be rich, we want to be wealthy. We want to be wealthy in assets, experiences, relationships, the things that we want to do, and sometimes, even if you're not making mistakes, even if you're not missing opportunities, you're still very worried. You're still not having that full financial confidence and peace of mind that you're on the right track and going to be okay because you have a trusted partner along the way. So those are the three costs making a mistake, missing an opportunity and pain.
Speaker 1:Now here's the other thing Just because you have a financial advisor, just because you hire a financial advisor, doesn't mean that you're automatically not going to make a mistake, automatically going to take advantage of every opportunity, automatically going to have that pain alleviated. This is where you need to make sure it's the right financial advisor. So how do you do that? Well, that's a topic for a different day. Certainly like to think that us at Root do a good job of that with clients, but this isn't a commercial for Root, just kind of talking through. How do we understand at what point it makes sense to work with a financial advisor? Here's the thing that I think correlates between all three of these things Between making a mistake, missing an opportunity and experiencing that pain.
Speaker 1:All of these tend to increase with financial complexity. So, as we go back to the question, at what age does it make sense to work with a financial advisor. Well, it's not an age thing, but it tends to be something that is a financial complexity thing. If you are an incredibly simple financial position, you're probably not that worried about hey, am I doing the right thing with my portfolio or income or savings? If it's super simple, there's not a whole lot to keep track of. You can probably do it just fine, at least for most people, as complexity grows. But as complexity grows, as your financial situation gets more intricate, as there's things like retirement planning, college funding, what to do with your home, potential inheritance, complicated investments All of these are things that a good financial advisor can provide some invaluable experience on, provide some invaluable services on. Now, one of the most important things they do to alleviate some of these things, to ensure that we're not making mistakes, to ensure that we're capturing opportunities, to ensure that we're alleviating some of that pain, it comes down to thought partnership. Is this someone that is partnering with you, not just in the actual implementation of your financial strategy, but the thought partnership around that, because it's very difficult to be objective about your own situation.
Speaker 1:This is universally true. This isn't a financial thing, this is just a universal truth. Here's the thing when there is one spouse that handles all the finances, chances are pretty good You've got some blind spots there. I don't care how good you are, I don't care about what your spreadsheet shows, I don't care how many hours a week you listen to podcasts and videos. You probably have some blind spots because I'll see, when there's two spouses involved, especially when they're coming from different backgrounds One's maybe a spender, one's a saver. They're kind of opposites. There tends to be not always, but there tends to be a more balanced approach to the finances.
Speaker 1:I know this is the case in my own personal financial situation, where I'm very much a saver. My wife, I think before we got married, was very much a saver too, but when we got married she said, okay, james Phil, and on that We'll all be the one that's kind of pushing for more experiences, pushing for more things. At first I didn't love that. I was like, hey, why is there tension here with this? Now I do love it. Now I love the fact that we balance each other out and as we talk about financial things, if it was all up to me or all up to her, we'd be in a very different financial position, but with the both of us coming together, talking about things out loud, talking about what we want to do, there's a much more balanced financial strategy where, yes, we're preparing for the future, yes, we're saving and investing, but we're also making sure to do things today with family. To do things today to maximize our relationship, to maximize what our family can do.
Speaker 1:I say that because when there's two spouses making financial decisions, it's not uncommon for those decisions to be more balanced, not just because it's joint input from two different perspectives, but because the act of talking aloud about those financial decisions is healthy. One of my favorite quotes, or quote I love, says thoughts disentangle themselves when they pass through lips and fingertips. Aka, we have all these thoughts in our head, but those thoughts get jumbled and they're vague and they're foggy, and it's not until we have a conversation with someone else, it's not until we take time to journal our thoughts, that those thoughts really become quite clear. So this is why I go back to the fact that if you have two spouses talking about something not always but generally there's a more balanced strategy. Not because two minds are better than one although that helps but because the act, the physical act of communicating with one another helps to get those thoughts out helps to get things processed, whereas if one spouse handles everything and that couple comes to us and one's kind of dominated the financial side of things, they might be really, really dialed in on a lot of financial strategies, but they're missing the forest of the trees.
Speaker 1:Their lives aren't necessarily richer because they've done such a good job of saving and investing and preparing, and so that's where having that thought partnership of hey, this is great, have we identified these strategies and these opportunities on the financial side? But also, how do we connect the dots between your financial success and your personal success? How do we ensure the success you've had financially turns into peace of mind and confidence to live out the retirement or the life that you want to live out? So the simple act of talking to your spouse can help this, or the simple act of talking to a financial advisor, if they feel that role of thought partnership can also help with this. So this both helps to get our thinking right about what are our actual goals. What do we actually want to accomplish?
Speaker 1:For many people it's a harder question than how do we optimize our finances. But having that thought partnership to do that helps to ensure we're not making a mistake either on the financial side or on the personal side. It helps to make sure we're not making a mistake, either on the financial side or on the personal side. It helps to make sure we're considering all opportunities and pursuing the right ones. And it helps to make sure that we're alleviating some of that pain. Because some of that pain is just those anxious thoughts, those thoughts that haven't fully been expressed or spoken out or really played out. And when you have that thought partnership, you can say oh okay, we're good, here's how we're going to address that, here's what we're going to do. And that alone, even if it doesn't change the way you're invested or change the tax strategy you're going to implement or change anything else, you're going to feel more confidence and peace of mind about your overall financial strategy. So that fear of a mistake, those anxious thoughts, that feeling of overwhelm, a lot of that can be alleviated with the right financial advisor.
Speaker 1:So, to summarize all this today the decision to work with a financial advisor should come when the cost of not working with a financial advisor exceeds the cost of working with a financial advisor. What are those costs, financial advisor? What are those costs? Well, it's the cost of making a mistake, the cost of missed opportunity or the cost of the pain that you might experience as you try to hold on to everything. So, yes, income and age and assets can play a role in your financial complexity, increasing to the point where an advisor could help you not make a mistake or identify opportunities or alleviate that pain. But those details or those factors alone aren't the driving factor.
Speaker 1:So I hope this is helpful, because I know a lot of people who listen to this podcast or on YouTube. It's they're in that situation of hey, I'm good at this, I've done this on my own for a long time, or maybe I've done this with another advisor. But should I be doing this? At what point should I be working with an advisor? I hope that, as we have some of these conversations, that's helpful to know. Do you need one, or maybe do you not need one in making the right decision for you. So thank you, as always, for listening. Please make sure to leave a review for the podcast If you're enjoying this content.
Speaker 1:Make sure that you're subscribed If you're listening on YouTube. I really appreciate you all taking the time to listen each week and, with that being said, I'll see you all next time. Hey everyone. It's me again for the disclaimer. Please be smart about this. Before doing anything, please be sure to consult with your tax planner or financial planner. Nothing in this podcast should be construed as investment, tax, legal or other financial advice. It is for informational purposes only. Thank you for listening to another episode of the ready for retirement podcast. If you want to see how Root Financial can help you implement the techniques I discussed in this podcast, then go to rootfinancialpartnerscom and click start here, where you can schedule a call with one of our advisors. We work with clients all over the country and we love the opportunity to speak with you about your goals and how we might be able to help. And please remember, nothing we discuss in this podcast is intended to serve as advice. You should always consult a financial, legal or tax professional who's familiar with your unique circumstances before making any financial decisions.